1. What is Rent-to-Own?

Rent-to-own (also called lease-to-own) is an agreement where you rent a property with the option to buy it at a predetermined price after a specific period. Part of your rent payments may go toward the eventual purchase.

2. How the Calculator Works

The calculator uses the standard rent-to-own payment formula:

Where:

• \( Purchase\ Price \) — Agreed future purchase price of the home
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months in the agreement

Explanation: This formula calculates the fixed monthly payment that would pay off the purchase price over the term at the given interest rate.

3. Understanding the Formula

Details: The formula is essentially the same as a standard mortgage payment calculation, treating the rent-to-own agreement as a loan for the purchase price.

4. Using the Calculator

Tips:

• Enter the agreed future purchase price in dollars
• Convert annual interest rate to monthly decimal (e.g., 6% annual = 0.005 monthly)
• Enter the term length in months (typically 12-36 months)

5. Frequently Asked Questions (FAQ)

Q1: What's typical for rent-to-own interest rates?
A: Rates are often higher than traditional mortgages, typically 6-10% annually, as these agreements carry more risk for the seller.

Q2: How much of my payment goes toward the purchase?
A: This varies by contract. Some agreements apply a portion (e.g., 25%) of each payment as purchase credit, while others may have separate rent and option fee components.

Q3: What happens if I don't buy at the end?
A: Typically you forfeit any option credits or fees paid. The exact terms depend on your contract.

Q4: Are there upfront costs?
A: Most rent-to-own agreements require an upfront "option fee" (typically 2-7% of purchase price) that may be credited toward the purchase.

Q5: How does this differ from Zillow's calculator?
A: This provides the basic payment calculation. Zillow's tool may incorporate local market data and more complex terms specific to their program.